When I was 16 years old, rich dad took his son and me to visit a cattle ranch. The ranch was a beautiful place to visit.
On this visit to the ranch, we happened to see cowboys herding cattle from the feed yard to the slaughterhouse. Although rich dad took us away before we could see any cattle being slaughtered, we knew what was going to happen… and so did the cattle. It was an experience I will never forget.
A few months later, rich dad took us to a dairy farm. Early in the morning, we saw the farmer herding his cows into the barn for milking. These cattle behaved very differently.
The financial lesson rich dad wanted us to learn was that, while both the cattle rancher and the dairy farmer count their cattle as assets, they treat their assets differently, and they operate via different business models.
The visits to the ranch and the farm were to emphasize the very important difference between two investing strategies:
Capital gains versus Cash flow
Simply put, a cattle rancher can be compared to a person who invests for capital gains. He has to keep finding and raising new cows. It's non-stop.
A dairy farmer is more like an investor who invests for cash flow. He only needs to maintain his cows rather. It’s much easier work.
One of the reasons so many people lose so much money investing, or think that investing is risky, is because they invest like ranchers. They invest to slaughter rather than to milk.
I invest to milk.
Milk makes ice cream!”
By Robert Kawasaki
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